If a loan is insured – either by FHA or PMI companies or guaranteed by VA or Rural Housing, then yes, the investor recoups a large portion of the loan, but not all. For those loans that are uninsured, the investor eats the loss. Banks/mortgage servicers do not like to foreclose on properties. The foreclosure process is expensive and time consuming. Then the servicer has a property in inventory to maintain and sell. Also expensive and time consuming.
In my 30 years experience in this industry, I can tell you that by and large, most borrowers default on their mortgages due to overextending their credit. They buy a house that they qualify for, then they buy a new car, a big screen TV, expensive new furniture, etc. They max out their credit cards, they take second and third mortgage out. They whine to the mortgage company that they can’t afford their house payments and what is the company going to do to help them out? We had one borrower who demanded we modify their loan because they spent all their money on beauty pageants for their daughter and could not afford the payments. They claimed they were investing in her future. Another took a two-week vacation to Tahiti and couldn’t make their payments. Many others demanded a loan modification so they could buy a new $25,000 car. Others quit their job because the boss was mean. And on and on. You would not believe the excuses people have for not being able to afford their mortgage. And yet the mortgage company/bank is the bad guy. I am not saying all borrowers are like this, but the majority simply make bad decisions with their lives and their money and then expect someone else to bail them out. They feel entitled because "President Obama says you have to help." Because the media tells them it’s OK to walk away – after all it’s not their fault.
Sometimes life is a struggle. There were years we did without luxuries. We didn’t have cable TV, we didn’t go on vacations, we didn’t go out to eat, we didn’t buy a new car, and we didn’t buy new clothes. We hunkered down, took second jobs and worked at making it work out. However, no one is expected to do this anymore. Now they can just put their hands out and the government will pass a law and make somebody somewhere fill that hand.
